NEW YORK (TheStreet) -- Melco Crown Entertainment (MPEL) shares are falling, down 2.45% to $19.48, in afternoon trading on Friday as pressure mounts on the gaming sector due to an analyst note saying that the floundering Macau gaming region in China is at a crossroads.
Susquehanna analyst Rachel Rothman said that the region is at a turning point as falling revenue in consecutive months puts pressure on the only legal gaming region in the country of over 1.5 billion people.
"We continue to believe that Macau will eventually turn, but we remain cautious in the near term given the small sample size, the potential for a full smoking ban, and no signs of a significant easing in the anti-corruption campaign," Rothman said. "We encourage investors interested in Macau to focus on LVS and MGM given greater downside protection."
Rothman decreased MGM Resorts (MGM) price target to $24 from $25 as a result of her analysis, while Las Vegas Sands (LVS) was lowered to $63 from $64, and Wynn Resorts (WYNN) dropped to $103 from $115.
Melco Crown is a developer and operator of casino gaming and entertainment resort facilities in China.
MGM shares are down 1.72% to $19.48, Las Vegas Sands are down 1.79% to $52.35, and Wynn Resorts are lower by 1.24% to $103.16.
TheStreet Ratings team rates MELCO CROWN ENTMT LTD as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate MELCO CROWN ENTMT LTD (MPEL) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its reasonable valuation levels and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including feeble growth in the company's earnings per share, deteriorating net income and disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- MPEL's debt-to-equity ratio of 0.96 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that MPEL's debt-to-equity ratio is mixed in its results, the company's quick ratio of 2.31 is high and demonstrates strong liquidity.
- MPEL, with its decline in revenue, underperformed when compared the industry average of 7.5%. Since the same quarter one year prior, revenues fell by 22.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. In comparison to the other companies in the Hotels, Restaurants & Leisure industry and the overall market, MELCO CROWN ENTMT LTD's return on equity is significantly below that of the industry average and is below that of the S&P 500.
- The gross profit margin for MELCO CROWN ENTMT LTD is currently lower than what is desirable, coming in at 29.32%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 5.75% trails that of the industry average.
- You can view the full analysis from the report here: MPEL Ratings Report